Connect with us

David Brown

Think Cost Should Determine Your Pricing? Think Again, Writes David Brown

mm

Published

on

The selling price, and ultimately the margin and profit you make from a piece of jewelry, can be a cause of angst for many jewelers. Bottom line — a customer will rarely pay more for an item than they want to.

We have been programmed historically to use a cost-plus basis for determining selling price, and certainly this provides a good benchmark or starting point to determine price. However, cost alone is insufficient in deciding the true value of an item. Firstly, cost is based on inputs — the price of the stone or metal that makes up a ring, for example, and valuations support this basis. However, as all of you who have had an old inventory item sit around for four years will testify, the value to the customer doesn’t always equal the inputs to the construction. Two rings of similar cost to manufacture can sell slower or faster than each other depending on the customer’s perception of their value to them. That makes it difficult to justify them being the same price.

Likewise, two customers won’t value an item the same regardless of the inputs that contribute to the cost. Other factors like their priorities, personal tastes, economic restrictions, and cultural inputs will all affect the amount they would be willing to pay. If you don’t believe me, show 10 customers an unticketed ring and have them tell you what they think it is worth — the variations will be interesting.

So ultimately, the selling price of an item will be determined by factors other than the costs of its manufacturer or purchase price. I am a fan of repricing items up that sell well to determine the best price they should be set at. You have to price them down when they aren’t good sellers, so the opposite needs to also apply. Your customers don’t care about your cost price on an ugly ring that you have to discount to 20 percent below purchase price — likewise, cost isn’t a factor in their decision-making for a fast seller that you have to wait six weeks for between orders.

If you do use a cost-plus approach to pricing, then remember that cost should also consider replacement cost, not just actual cost. If you sell that item today, what is the cost of replacing it now with something equal or similar? Too often, with changes in the cost of raw materials, storeowners are caught short by their pricing. This can reduce the profit you thought you were making on something, especially if the replacement item proves harder to sell.

As mentioned, pricing is an individual choice, but it pays to consider more than just the cost of purchasing inventory when making the decision on selling price. 

Advertisement

David Brown is president of the Edge Retail Academy, a force in jewelry industry business consulting, sell-through data and vendor solutions. David and his team are dedicated to providing business owners with information and strategies to improve sales and profits. Reach him at david@edgeretailacademy.com

Advertisement

SPONSORED VIDEO

Wilkerson Testimonials

Having a Moving Sale? Let Wilkerson Do the Heavy Lifting

For Jim Woodard, owner of Woodard’s Diamonds & Design in Tullahoma, Tenn., when it was time for a moving sale, there was only one company to help with the event: Wilkerson. “They brought in the right team for us,” he says, remarking about the sale’s extraordinary results, including a nearly 500% monthly sales increase compared to the previous year. “I wanted to have the best in the industry. And that’s the main reason why I contacted Wilkerson.”

Promoted Headlines

David Brown

Here’s How to Succeed at Succession Planning

Be sure to consider these four areas to prevent unnecessary conflict.

mm

Published

on

MONEY CAN BE A sensitive topic to talk about. Generally, people don’t like to discuss it even in the privacy of their own home. Yet, not talking about your financial situation can make a significant difference in how much of your wealth is passed on to other family members. Whether it’s a business being passed on or the wealth that it has created, careful planning is required.
Government legislation is constantly evolving in this area. It’s important to set up for the passing of wealth and to ensure this is compliant with the current laws.

Here are some things to consider:

1. Inform family members of what may be coming their way. Give them the opportunity to prepare for the financial impact an inheritance may have. More than one family has been undermined by a sudden arrival of wealth they didn’t expect and couldn’t handle. Such preparation can help them to plan their ownership and tax structures to handle it effectively.

Video: Increase Your Jewelry Sales Through Add-Ons
Jimmy Degroot

Video: Increase Your Jewelry Sales Through Add-Ons

Video: It’s Not My Problem When You Buy a $120 Ring and Your Wife Finds Out It’s ‘Fake’
Headlines

Video: It’s Not My Problem When You Buy a $120 Ring and Your Wife Finds Out It’s ‘Fake’

Video: Things to Remember When Dealing with ‘Gonna Buy’ Jewelry Customers
Headlines

Video: Things to Remember When Dealing with ‘Gonna Buy’ Jewelry Customers

2. Be sure to involve key stakeholders. Be selective about who is involved in the decision-making process, the administration and the final beneficiaries. The process can be daunting and potentially alienate family members and cause unnecessary conflict.

3. Ensure a single unified vision. Particularly where parents are concerned, it’s important to ensure a consistent message is communicated about the ongoing management of the family business. If there is to be a successor, there needs to be an agreed upon approach as to who it will be and how it will be handled.

4. Don’t wait too long to pass on ownership and responsibility. If the business is to go to the next generation, a grooming process is recommended to ensure the transition is smooth and the successor has done their “time.” You should always be prepared for an unexpected event that may speed this process up faster than you intended — it’s better to be over-prepared in this area than under-prepared.

Whether a business is being passed on or the wealth that the business has created, it’s important that the vision is clearly communicated regarding how the legacy will be passed onto future generations. Sharing this vision can be an effective means of making sure the succession plan goes as smoothly as possible.

Continue Reading

David Brown

These Stores Have Seen Lower Silver Sales in the Face of Better Overall Results — How Do Your Results Compare?

Check out The Edge Retail Academy’s latest results.

mm

Published

on

ROLLING 12-MONTH SALES for June averaged $1.897 million, up 1% from the June 2018 result of $1.879.

Storewide sales for the 12-month period averaged 6,118 units per store, down 5.5% to 6,474. Average sale per item increased from $290 per item to $310, a rise of 6.9%.

With sales increasing $18,000, gross profit grew from $859,000 to $871,000, a rise of 1.37% on the back of markups, which improved from 84% to 85%. This again illustrates how even a slight increase in margin can have a significant effect on bottom-line profit.

Video: Increase Your Jewelry Sales Through Add-Ons
Jimmy Degroot

Video: Increase Your Jewelry Sales Through Add-Ons

Video: It’s Not My Problem When You Buy a $120 Ring and Your Wife Finds Out It’s ‘Fake’
Headlines

Video: It’s Not My Problem When You Buy a $120 Ring and Your Wife Finds Out It’s ‘Fake’

Video: Things to Remember When Dealing with ‘Gonna Buy’ Jewelry Customers
Headlines

Video: Things to Remember When Dealing with ‘Gonna Buy’ Jewelry Customers

We’ve spoken a lot through these results about the decline in units sold across store data, and this is most obvious when looking at the performance of silver sales. Our 12-month data through June shows average store sales of $99,000 for silver items, down from 2018’s figure of $113,000 (a 14% decline) and 2017’s figure of $136,000 (2019 result represents a drop of 27% from 2017). Unit sales match this decline with sales of silver items at 926 items, down from 1,210 in 2018 (a fall of 23.4%). The drop in units has been offset by a healthy increase in average sale of silver items, with the average increasing from $94 to $107 between 2018 and 2019 – a rise of 13.8%.

Based on this information, the typical store has seen silver’s contribution to overall sales decline from 7.7% to 5.2% in the last two years. How has silver been for your store? If silver sales have declined, has there been a trade-off in other areas? Clearly most stores have seen a rise in sales while silver has dropped, indicating that they are more than making up for it. Is this the case with your store? If silver has dropped but you haven’t made up for it elsewhere, its time to look at your store’s performance.

Inventory

Does your store still say silver? Have you continued to focus on an area that has become less profitable? Print an inventory by department list and determine what percentage of your store product is silver. Does it represent a greater percentage of your overall inventory than you are selling?

Silver will generally have a faster stockturn that most other items, so you should expect your percentage of inventory to be significantly lower than your percentage of sales in this area. If it’s not, you may be saying “silver” to your customers when you should be saying something else.

Marketing

What message are you sending your customers? Are you focused on the right type of product in your marketing? Are you still emphasizing cheaper silver product when the market wants something else?

Staff

Have your staff moved on from the bead market in what they are attempting to sell? Are they skilled up to sell higher-priced items? If the average sale in most stores has increased by 20% in the last two years, then your staff need to realize the performance goalpost has shifted for them, too. They need to be increasing their average sale to keep pace with the general trend – but they won’t know to do this if you don’t tell them. Print a salesperson performance report for your staff and compare it to a similar report from two years ago. Who has lifted their average sale? Who is still at the same level? Be prepared turn potential into profit to discuss this with them. They may not know what has been happening, and they cant change if you don’t tell them.

Continue Reading

David Brown

Here’s How to Make Your Biggest Sale Ever … Again

To reproduce your highest-priced sale, you have to show the right product.

mm

Published

on

CHANCES ARE YOU easily recall the single highest-priced item that you’ve ever sold in your store — the adrenalin rush of seeing it appear on your terminal or as a line item in your reporting or maybe a deposit on the bank statement. The excitement of moments like this makes retail worthwhile.

Assess how it happened. What were the circumstances of that particular sale? Did you consciously create the opportunity, or did it fall in your lap?

Video: Increase Your Jewelry Sales Through Add-Ons
Jimmy Degroot

Video: Increase Your Jewelry Sales Through Add-Ons

Video: It’s Not My Problem When You Buy a $120 Ring and Your Wife Finds Out It’s ‘Fake’
Headlines

Video: It’s Not My Problem When You Buy a $120 Ring and Your Wife Finds Out It’s ‘Fake’

Video: Things to Remember When Dealing with ‘Gonna Buy’ Jewelry Customers
Headlines

Video: Things to Remember When Dealing with ‘Gonna Buy’ Jewelry Customers

A better question is, have you consciously tried to reproduce it?

Perhaps you thought you got lucky and it was a one-off sale. Yet, the reality is that if you did it once, you can do it again.

Let’s assume the item was a diamond ring, as that’s the most likely scenario. Do you have anything in your inventory at that price range? Perhaps it was a custom piece made for someone; nevertheless, chances are you do not have a similar piece displayed in your store.

The challenge is that your current inventory influences your customer’s perception. If your diamond rings range between $10,000- $20,000 retail, your customer will see you as a store that offers fine jewelry up to $20,000. A customer who is willing to spend $50,000 may not see you as the place to shop, causing you to lose these potential luxury sales.

We are not suggesting that you rush out to buy a lot of $50,000 rings. Instead, work out an arrangement with one of your top performing vendors that will allow you to showcase these higher-priced items. Remember, if you hope to sell a $50,000 ring, you may need to show a $70,000 one to get the market interested. Customers will seldom spend more than you show them.

The best way to reproduce your highest-priced sale is to make sure your inventory includes those price points and to prominently display them in your store.

Continue Reading

Advertisement

Advertisement

Advertisement

Subscribe


BULLETINS

INSTORE helps you become a better jeweler
with the biggest daily news headlines and useful tips.
(Mailed 5x per week.)

Latest Comments

Most Popular